During the long, tortuous history of bankruptcy reform legislation, each time a bill seemed close to passage, news reports and some lenders warned that filings would spike before the rules got stricter.
However, experts now say that any such increases during those periods were statistically insignificant. And since bankruptcy reform law is scheduled to go into effect in October, the correlation between talk about toughening the rules and increases in actual filings will be put to the ultimate test.
Nonbusiness filings for protection from creditors under the federal Bankruptcy Code jumped 8% in the first quarter from the fourth, to 393,086, according to the American Bankruptcy Institute.
Experts say that the rise will probably continue until the law goes into effect, but that many of the individuals expected to file would have done so eventually regardless of legislative developments, and that at most, the upcoming changes are causing them to seek protection sooner.
"Now that the bill is signed into the law, the word is beginning to get out to the consumer debtor bar, and chances are the rise in bankruptcies will be sustained through the period as people become aware," said Samuel J. Gerdano, the Alexandria, Va., research group's executive director.
But Mr. Gerdano dismissed expectations of bubbles when bankruptcy legislation was merely threatened; he said he did not see much effect on bankruptcy filings when legislation seemed impending.
"Reports were always anecdotal, occasional news stories," he said. "You couldn't tell discernibly by the numbers."
Before President Bush signed the legislation in April, reform bills made several appearances in the last few years on Capitol Hill, only to be defeated again and again.
MBNA Corp., the third-largest U.S. credit card issuer, has said it has spotted a real jump in bankruptcy filings. Last month, before Bank of America Corp. announced its deal to buy the Wilmington, Del., issuer, MBNA reported that its loss rate for May rose in part because of an increase in bankruptcy "caused by seasonality and by consumers filing for bankruptcy ahead of the new bankruptcy law going into effect in October 2005."
But Capital One Financial Corp. said chargeoffs dropped in May.
Starting Oct. 17, those filing for bankruptcy protection will have to undergo means testing to determine whether they can pay back at least some of their debts. Credit card lenders, whose balances are typically wiped out when customers file for bankruptcy, were heavy campaigners for the new law.
"As rules get tougher, if they were on the fence about doing it, this type of announcement tends to push people over," said James Accomando, a consultant to credit card issuers. But he questioned whether there would be an actual increase in the total number of filings, or if the changes would merely influence people to file a few months earlier than they would have otherwise.
Ed Kashmarek, an economist with Wells Fargo & Co., agreed that bankruptcy filings were surging in advance of the changes, but he said he was not convinced that earlier rises during periods when legislation was threatened had much to do with the pending legislation.
"There have been some spikes in bankruptcies in the past, but I don't think anybody would rush to file if no law was signed," Mr. Kashmarek said. "Now that the law is signed we are seeing a stark rise in bankruptcies, the first we have seen since beginning of 2003."
After two months of big increases, filings dropped a bit in May but remained above year-earlier levels, he said.
Philip S. Corwin, a partner with the Washington law firm Butera & Andrews, who has worked on bankruptcy issues for over 20 years, said any apparently connected jump in filings when there was talk of bankruptcy reform was probably illusory.
"When it seemed like legislation was close, there were anecdotes of a slight rise in bankruptcy filings," probably because of "debtor attorneys who would call people and say, 'It is now or never,' " he said. "It would be difficult to match a spike and say it is solely attributable to impending enactment of legislation."
Further, people who file for bankruptcy protection probably would not make such an important decision simply on the basis of news stories, Mr. Corwin said.
He questioned whether the changes would have much of an impact.
"Based on talking to people in the credit counseling industry, I don't think you are seeing a lot of people taking bankruptcy who wouldn't otherwise," Mr. Corwin said. "When auto dealers offer a big rebate, they don't necessarily sell more cars over all but may sell more during that particular offer."
People who file before the changes go into effect most likely would have filed anyway but may do it a few weeks or months sooner when their lawyer tells them the rules will change soon, he said. "Bankruptcy is a serious decision. I don't think people are rushing out to take it because they want to beat the legislation."
